A Charitable Scam

To be fair, what the Red Cross will tell you is that if they have excess donations for a particular crisis they feel free, morally justified even, taking those funds and re-purposing them to fill needs just as urgent but less popular.

Now you may agree or disagree with that position on it’s own merits but what those of us who have been in the charity game know is that they spend lavishly on their own pet priorities and compensation and perks for their professional staff and board memembers.

And if you don’t believe me why are they acting like scam artists?

Red Cross: How we spent Sandy money is a “trade secret”

Justin Elliott (ProPublica), Salon

Saturday, Jun 28, 2014 08:00 AM EST

Just how badly does the American Red Cross want to keep secret how it raised and spent over $300 million after Hurricane Sandy?

The charity has hired a fancy law firm to fight a public request we filed with New York state, arguing that information about its Sandy activities is a “trade secret.”

The documents include “internal and proprietary methodology and procedures for fundraising, confidential information about its internal operations, and confidential financial information,” wrote Gabrielle Levin of Gibson Dunn in a letter to the attorney general’s office.

If those details were disclosed, “the American Red Cross would suffer competitive harm because its competitors would be able to mimic the American Red Cross’s business model for an increased competitive advantage,”  Levin wrote.

The letter doesn’t specify who the Red Cross’ “competitors” are.

Why Is the American Red Cross Acting Like Big Business and Not a Charity?

By: BrandonJ, Firedog Lake

Friday June 27, 2014 10:41 pm

The Red Cross is also under investigation by New York Attorney General Eric Schneiderman, who said last year 42 percent of donations, at the time, raised by 89 different charities-the Red Cross among them-did not go victims of Hurricane Sandy. Schneiderman, along with others, was able to apply pressure to the Red Cross to donate an additional $6 million to the victims.

As mentioned in the article by Elliot, the use of “trade secrets” by the Red Cross is a peculiar argument by the foundation since charities ordinarily would not be expected to use the exemption. Indeed, the Red Cross is so protective of its structure that it hired Gibson, Dunn & Crutcher, the law firm New Jersey Governor Chris Christie hired to investigate the”Bridgegate” scandal, ultimately exonerating most of Christie’s staff after the questionable investigation.

The use of their “business model” is alarming considering this model failed after Hurricane Sandy hit the Mid-Atlantic region. Journalist Sam Knight covered its failures during Hurricane Sandy relief in a recent article highlighting the power Occupy Sandy held during the crisis. In one example, Knight revealed how the Red Cross failed to help move a 90-year-old woman to a warm place, yet it provided a hotel in Manhattan for its volunteers, costing $181,000.

Knight continued on the problems the Red Cross had when distributing aid to the residents affected by the hurricane.

“Just outside the church, another scene of clumsily administered relief was on display. At the nearest intersection, a Red Cross van announced, via megaphone, ‘hot soup!’ to no one in particular. Two blocks in either direction, locals were ladling warm meals to anyone seeking a hearty eat. The truck left not long after arriving. It fed no one,” Knight wrote.

It is difficult to believe any other charity would emulate the “business model” of the American Red Cross in future disasters considering its most recent failure. In fact, they would follow what Occupy Sandy did, as journalist Allison Kilkenny mentioned when reporting on their efforts.

What about Schneiderman’s investigation?

Well, what about it?

New York’s Schneiderman Accepts Red Cross’ “Trade Secrets” Excuse to Hide Sandy Spending

by Yves Smith, Naked Capitalism

Posted on July 1, 2014

It’s not clear what to make of an attorney general who opens an investigation and then accepts lame excuses for maintaining secrecy from its target, in this case, the American Red Cross. We’re flagging this example because it exemplifies an effort by organizations to use “trade secrets” as a pretext for hiding more and more of their dealings with governments. This is absurd, since the premise of Federal and state Freedom of Information Act laws is that government records should be open to the public, and that includes records of entities doing business with government agencies. In other words, if you want to have government bodies as your customers, one of the costs of doing business is having your formal interactions with them subject to public review.

The Red Cross has come under repeated criticism for poor performance at its core mission, disaster relief. The charity has an unusual quasi-public role by virtue of obtaining a Congressional charter in 1905 develop a system of emergency relief and disaster prevention. Thus, the Red Cross, as a charity, has long been a monopoly provider of national first/early responder services. No other charity has a similar stature or scope. While the Red Cross also receives a limited amount of funding from FEMA, the far more important aspect of its relationship with government is the considerable prestige and competitive advantage it has gained through its charter, which it had obtained through able performance under its founder Clara Barton in providing assistance in major calamities in the 19th century, such as the Great Fire of 1881 and the Jonestown Flood of 1889. The Red Cross also has a formal role in conjunction with FEMA in providing “mass care, emergency assistance, temporary housing” and other services.

Proof of the Red Cross’ de facto monopoly position comes through the fact that there is no organization to take over its role as its performance has faltered. The Red Cross was criticized for slow responses and waste of funds in 9/11 and Katrina. Congress forced governance changes on the Red Cross in 2007, but that was insufficient to lead to better results in Hurricane Sandy. As New York City readers may know, Occupy Sandy ran rings around the Red Cross in the hardest-hit areas here, particularly Staten Island.

That of course raised the obvious question: the Red Cross had solicited aggressively for funds during and shortly after the hurricane. Where did the $300+ million go? Why weren’t the relief services delivered well?

But the troubling part is that Schneiderman, who has proven repeatedly to be an overly cautious prosecutor, took any of the Red Cross’ claims seriously. “Trade secret” status is based on the ability for competitor to do economic damage with the information. The only information in general that a charity possesses of this nature is related to donor giving: who the big donors are, what their giving patterns have been, and what sort of success they’ve had with various types of fundraising campaigns. Particularly for an organization as large and presumably as sophisticated as the Red Cross, that sort of know-how might be valuable, if it really were unique, as opposed to well-known and widely used solicitation and donor-grooming methods.

But with the Red Cross, you have to look at its monopoly provider status. Who can compete with them? The idea that some other organization is hot on its heels and eager to copy its methods is barmy. The closest direct competitor is Médecins Sans Frontières, which is not a player in US disasters, and local charities, which lack the clout and reach. So any claims regarding possible competitive harm should be regarded with extreme skepticism.

Yet Schneiderman took way too much of the Red Cross’ demand for special treatment at face value, and agreed to shield material related to “business strategies, internal operational procedures and decisions, and the internal deliberations and decision-making processes that affect fundraising and the allocation of donations.” I guarantee that like the private equity descriptions of their business strategies in limited partnership agreements that were released to the public, that there’s no special sauce in that, nor in anything else save possibly fundraising. The experts ProPublica quoted in its article also though the Red Cross claims were indefensible.

The good news is that fighting disclosure seems to have backfired on the Red Cross. As Barry Ritholtz at Bloomberg wrote.

As poor as the Red Cross’ conduct is, it should also be shame on Schneiderman for enabling this unjustifiable position. His knuckling under to the Red Cross extends the bad precedent of having private equity contracts with government investors exempted from public scrutiny. Contract bids and terms are also competitively valuable, yet heretofore, no one would have thought it acceptable to keep them from the media and interested citizens. But public officials like Schneiderman are all too willing to accede to private sector secrecy demands, no matter how ludicrous, which will make it easier for these organizations to hide incompetence and looting.

Now don’t get me wrong.  They do a great job at collecting blood and Water Safety instruction, but looting is not too strong a word.


    • BobbyK on July 2, 2014 at 23:28

    Blood Banks too apparently.

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